Malloy exhausts fiscal cushion for education, pensions

Gov. Dannel P. Malloy unveiled a revised, $20.73 billion budget plan for the next fiscal year, adding nearly $330 million in spending over the preliminary budget, largely to fund additional education aid for towns and to bolster the state employees’ pension fund.

Malloy would pay for the extra spending largely by consuming what is left of the nearly $555 million fiscal cushion he and legislators built into the preliminary 2012-13 budget adopted last spring. But the plan does rely on more than $8 million in new revenue to be generated by allowing Sunday liquor sales.

The governor also launched a few other initiatives in his budget, but relied in part on the state’s credit card to cover much of that funding. These include a major boost in funds for supportive housing, an extra $2 million for tree trimming and additional spending to cover increased demand for social services.

The budget chief: Benjamin Barnes

The proposal also sets a new asset test for providing health insurance to individuals in the state’s Medicaid program for adults without minor children.

Malloy’s budget director, Office of Policy and Management Secretary Benjamin Barnes, said the revised plan would fall under the constitutional spending cap by just $5.9 million, but would shatter the cap by about $650 million by 2013-14. Nonetheless, Barnes said, “we remain committed to reducing expenditures below current services level to remain below the cap.”

But the Democratic governor’s Republican critics have argued that the administration has a poor track record when it comes to finding budget savings. Though a record-setting $1.5 billion tax increase was needed to balance finances for the current fiscal year, Malloy and the legislature’s Democratic majority still approved a 5 percent increase in spending, and the current budget either lies $145 million in deficit or stands a razor-thin $1.4 million in the black, based on estimates from legislative and executive branch analysts.

“We believe there are going to be significant challenges in the future,” Barnes said Wednesday during his budget briefing with Capitol reporters. “There were challenges in the past.”

The administration would continue its efforts to merge state departments and agencies under this new budget, shrinking them from 59 to 52. But the governor already has acknowledged that there would be relatively little in terms of position cuts, and budgetary savings, in this round of mergers.

That’s largely due to a provision in last summer’s union concessions deal. In exchange for a two-year wage freeze, new restrictions on health care and retirement benefits, and savings from other changes, the administration agreed to exempt most bargaining units from layoffs for four fiscal years, through 2014-15.

Barnes continued a theme Wednesday that Malloy has struck repeatedly in recent weeks: keep the current budget challenges in perspective.

When Malloy took office last January, he inherited a budget on pace for a $3.7 billion deficit — equal to roughly one-fifth of overall spending — in the 2011-12 fiscal year.

That deficit was closed with a $1.5 billion tax hike, a major union concessions deal and some controversial assumptions about economic recovery and revenue growth that have since been scaled back.

“There’s still more to do, but we believe this budget continues that progress,” Barnes said.

Barnes said the administration would recommend no cuts to the existing $2.8 billion package of grants to Connecticut’s cities ands towns, and would also add an extra $50 million to the single-largest grant, the $1.9 billion Education Cost Sharing program.

Malloy also would support easing some existing mandates on cities and towns, including making it simpler for communities to levy local property taxes on partially completed property developments — a change Barnes estimates to be worth $30 million annually to municipalities.

The single-largest new initiative in the budget is Malloy’s planned fix for the pension fund, which currently has enough assets to cover just 48 percent of its long-term obligations. Fund actuaries typically cite a ratio of 80 percent as fiscally healthy.

The governor’s plan would add $123 million to pension spending in the coming fiscal year, and about $300 million by 2013-14.

Malloy would pump an extra $62.5 million into programs to develop subsidized housing for low- and low-to-middle income families as well as additional congregate care housing for the frail elderly. Barnes added that this latter initiative typically costs only about one-tenth of the cost of nursing home care. “We think it’s an important part of our community care spectrum,” he said.

All of this $62.5 million investment would be financed over the long term through bonding, rather than paid for directly in the proposed operating budget.

The budget also would create a new state office of housing within the Department of Economic and Community Development.

The plan adds more than $58 million to cover increasing demand for social service programs, particularly health care for clients of the state’s welfare program for single adults.

To help control costs in that area, Malloy proposed a change that has drawn opposition from advocates for low-income residents and skepticism from some key lawmakers.

Malloy would restrict access to benefits in one Medicaid program to adults with assets that, excluding their residence and a vehicle, top $25,000. Individuals with these assets “should not be relying on the state to buy them health insurance,” Barnes said. “Those individuals should be purchasing it for themselves.”

The asset test would apply to the Medicaid program for Low Income Adults, which covers people who do not have minor children. The state would need federal approval to implement it.

Connecticut’s private nonprofit community, which provides the bulk of state-funded social services, would receive its first funding increase in five years — albeit a small jump of 1 percent — under the governor’s plan.

The state currently dedicates more than 6 percent of current spending, more than $1.3 billion, for contracts with these community-based agencies. The governor’s plan would spend an extra $8.5 million on these programs in 2012-13.